Astro  kicked  off  FY14  with  upbeat  numbers,  posting  a  14.2%  jump  in 1QFY14  revenue  while  its  MYR114.1m  earnings  met  our  estimates.  We note the positive ARPU growth which is on track with its internal target. Expenses  may  peak  this  year  but  EBITDA  margin  should  remain healthy. A higher dividend of 2 sen was declared. We remain positive on the stock, which we upgrade to BUY, with a MYR3.36 FV. 
 
- Numbers spot on.  Astro Malaysia Holdings (Astro) reported a 1QFY14 net profit of MYR114.1m (+37.1% q-o-q, -6.8% y-o-y), which was in line with  our  forecast  but  slightly  below  consensus’.  Its  topline  of MYR1,125.8m,  which  rose  14.2%  y-o-y,  was  mainly  backed  by:  i) improved  average  revenue  per  user  (ARPU),  and  ii)  stronger advertisement  expenditure  (adex)  contribution.  EBITDA  margin  shrank by  a  slight  1%  but  was  in  line  with  Management’s  guidance  and  our forecast.   

- ARPU growth on track. Management guided that Astro aims to achieve an  ARPU  of  MYR130  by  FY18  and  that  its  current  growth  rate  is  on track. In 1QFY14, the company reported an ARPU of MYR94.2 (+1% q-o-q,  +4%  y-o-y)  on  the  back  of  higher  take-up  rates  of  its  value-added services.  

- Higher expenses estimated. Astro’s capex and opex may peak in FY14 due  to:  i)  clearing  out  of  the  remaining  Astro  B.yond  set  top  boxes (STBs),  ii)  higher  spending  to  encourage  existing  clients  to  swap  to B.yond  STBs,  and  iii)  IPTV  roadshows.  As  the  company  will  be amortizing its costs from the new Barclays Premier League season from August  onwards,  this  will  see  its  expenses  go  up.  Nonetheless, Management is guiding for FY14F EBITDA margin of 32% to 33%, which is in line with our expectations.  

- Adex  revenue  improves.  As  adex  in  Malaysia  has  been  shifting  from print  media  to  TV,  we  see  a  29.6%  y-o-y  jump  in  Astro’s TV adex revenue  from  MYR49.6m  in  1QFY13  to  MYR64.3m  in  1QFY14.  This corresponds with our view that advertisers are starting to look at the Pay TV segment as a medium for marketing.

Source: RHB